Figure 26-11 -Refer to Figure 26-11. in the Dynamic Model of AD-AS

question 43

Multiple Choice

Figure 26-11
-Refer to Figure 26-11. In the dynamic model of AD-AS in the figure above, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in

• A) unemployment rates higher than what would occur if no policy had been pursued.
• B) inflation higher than what would occur if no policy had been pursued.
• C) real GDP lower than what would occur if no policy had been pursued.
• D) short-term interest rates higher than what would occur if no policy had been pursued.

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Definitions:

Price Variance

The difference between the actual price paid for something and its standard or expected price, often analyzed in cost accounting.

Quantity Variance

The difference between the expected and actual quantity of materials used in production, reflecting efficiency in material usage.

Direct Materials

The raw materials directly used in the manufacturing of a product.

Budgeted Operating Income

The anticipated revenue from operations minus the expected operating expenses for a certain period, typically before financial expenses and taxes.